Little Known Secret: Eliminate your Mortgage in 23 years or
Wanna know a little secret? There is an ingenious method you
can use, to pay off your 30 year fixed rate loan, in 23 years or
less. It's straightforward, simple, and easy to understand. In
this article, we're going to explore this little known secret,
and we'll provide several examples of how it works, a few methods
on how to implement, along with some information on where to go
and how to get started.
1. Accelerated Payments:
By accelerating the payment structure on your loan, the life
of the loan is reduced:
- In a normal 30 year fixed rate loan situation, your monthly
payment is applied towards principle and interest. It is
amortized over the course of 30 years.
- So any money above and beyond your normal payment is
applied solely towards the principle of the loan.
- By reducing the principle of the loan, you are reducing the
total amount of interest that must be paid, and that equates to
an early loan payoff.
2. An Illustration:
- You bake a cake (principle), and put it in the oven. Once
the cake is out of the oven, you'll need to frost it with icing
(interest). Let's say your cake is 12 inches in diameter, and
let's say you need 3 jars of icing.
- But you're hungry, so you eat half the cake early. Now, the
cake is only 6 inches in diameter. Because of this, you only
need 1 jar of icing.
- By reducing the cake (principle), you've reduced how much
icing (interest) you need.
- Furthermore, it takes less time to frost 1 jar of
- So, by paying a little more in principle, you reduce the
interest owed. That reduces the life of the loan.
Think of it this way: All you have to do is make 1 extra
monthly house payment a year. Do that and you reduce the life of
your fixed rate loan by about 7 years! You can be as creative as
you want to accomplish this, but here are 3 known methods:
- Bi-Weekly Payments: Normally, you make your house payment
once a month, or 12 times a year. But with a Bi-Weekly payment
structure, you take your normal house payment, and divide it by
two. This is the amount paid every two weeks, instead of once a
month. By doing this, you basically make 1 extra (monthly)
payment a year.
- Double Payments: Double Payments simply means an extra
house payment. Once a year, you write out a check for twice the
amount. So, if your house payment is normally $1,000 a month,
then on December 1st, for example, you'd write out a check for
$2,000. This, in essence, accomplishes the same thing that
Bi-Weekly Payments accomplish. You make 1 extra payment a
- 1/12 increase in payment: Increase your monthly mortgage
payment by 1/12, and you accomplish the same thing. Let's say
your house payment is normally $1000. 1/12 of your house
payment is $83. So, you start making payments for $1,083. Guess
what? Your loan is paid off in about 23 years instead of
Sidenote: A "Bi-Monthly" payment is not necessarily the same
thing as a Bi-Weekly payment. It may just mean that you are
paying ½ your monthly payment on the 15th and ½ is paid
on the 30th. The key is this: Are you paying a little more each
year, such as 1 extra house payment? If you are, then early
payoff is your ripe reward!
4. Here's an Example:
Bob has a $300,000 loan at 7% interest, and his monthly
mortgage payment is currently $1995.91. Each year, Bob pays
- Bob calls his lender, and his payment schedule is
restructured as a bi-weekly payment. Every two weeks, Bob
writes a check out for $997.96. Because of the two extra
payments this year, Bob will have paid $25,946.83. His loan is
reduced by about 7 years.
- Or, on December 1st, Bob writes out a check for $3,991.82.
Because of this 1 extra payment, Bob will have paid $25,946.83.
His loan is reduced by about 7 years.
- Or, Bob pulls out his calculator, and adds 1/12 to his
monthly payments, which equates to $166.33. Bob now writes out
a check each month for $2,162.24. At the end of the year, Bob
will have paid $25,946.83, and his loan is reduced by about 7
5. The Next Step:
- How disciplined are you? Because, if you're not disciplined
at all (like myself), then what are the chances of you sticking
with the program? Call your lender, and set up the bi-weekly
payment. This way, you are totally hands off and it will all
become automatic and habitual. You can always change it back if
times get rough, but at least there's no temptation to revert
back to cheaper payment.
- Or, do you have online bill-pay with automatic payments? If
so, go into your bank online, and add 1/12 to your monthly
- Can you afford to accelerate your payments even further?
Adding 2 extra monthly payments a year, for example, reduces
your loan by about 10 years. Of course, now it might be time to
consider examining a new secret strategy, the 15 year
We've enjoyed providing this information to you, and we wish
you the best of luck in your pursuits. Remember to always seek
out good advice from those you trust, and never turn your back on
your own common sense.
Copyright 2004, by LoanResources.Net
This article may be freely distributed so long as the
copyright, author's information, disclaimer, and an active link
(where possible) are included.
About The Author
Tom Levine provides a solid, common sense approach to solving
problems and answering questions relating to consumer loan
products. His website seeks to provide free online resources for
the consumer, including rate-watch, tips and articles, financial
communication, news, and links to products and services. You can
check out Tom's website here: http://loanresources.net, or you can email Tom
at [email protected].
MORE RESOURCES updated Sun. May / 28 / 2023
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